Did The Underlying Business Drive Square's (NYSE:SQ) Lovely 351% Share Price Gain?

<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="For us, stock picking is in large part the hunt for the truly magnificent stocks. Mistakes are inevitable, but a single top stock pick can cover any losses, and so much more. Take, for example, the Square, Inc. (NYSE:SQ) share price, which skyrocketed 351% over three years. The last week saw the share price soften some 3.4%.” data-reactid=”18″>For us, stock picking is in large part the hunt for the truly magnificent stocks. Mistakes are inevitable, but a single top stock pick can cover any losses, and so much more. Take, for example, the Square, Inc. (NYSE:SQ) share price, which skyrocketed 351% over three years. The last week saw the share price soften some 3.4%.

<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content=" Check out our latest analysis for Square ” data-reactid=”19″>Check out our latest analysis for Square

Because Square is loss-making, we think the market is probably more focussed on revenue and revenue growth, at least for now. Shareholders of unprofitable companies usually expect strong revenue growth. That’s because it’s hard to be confident a company will be sustainable if revenue growth is negligible, and it never makes a profit.

In the last 3 years Square saw its revenue grow at 34% per year. That’s well above most pre-profit companies. In light of this attractive revenue growth, it seems somewhat appropriate that the share price has been rocketing, boasting a gain of 65% per year, over the same period. Despite the strong run, top performers like Square have been known to go on winning for decades. In fact, it might be time to put it on your watchlist, if you’re not already familiar with the stock.

The image below shows how earnings and revenue have tracked over time (if you click on the image you can see greater detail).

More

<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="We're pleased to report that the CEO is remunerated more modestly than most CEOs at similarly capitalized companies. It's always worth keeping an eye on CEO pay, but a more important question is whether the company will grow earnings throughout the years. This free report showing analyst forecasts should help you form a view on Square” data-reactid=”35″>We’re pleased to report that the CEO is remunerated more modestly than most CEOs at similarly capitalized companies. It’s always worth keeping an eye on CEO pay, but a more important question is whether the company will grow earnings throughout the years. This free report showing analyst forecasts should help you form a view on Square

A Different Perspective

<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="Square produced a TSR of 11% over the last year. It's always nice to make money but this return falls short of the market return which was about 25% for the year. But the (superior) three-year TSR of 65% per year is some consolation. Even the best companies don't see strong share price performance every year. Shareholders might want to examine this detailed historical graph of past earnings, revenue and cash flow.” data-reactid=”37″>Square produced a TSR of 11% over the last year. It’s always nice to make money but this return falls short of the market return which was about 25% for the year. But the (superior) three-year TSR of 65% per year is some consolation. Even the best companies don’t see strong share price performance every year. Shareholders might want to examine this detailed historical graph of past earnings, revenue and cash flow.

<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="For those who like to find winning investments this free list of growing companies with recent insider purchasing, could be just the ticket.” data-reactid=”38″>For those who like to find winning investments this free list of growing companies with recent insider purchasing, could be just the ticket.

<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on US exchanges.” data-reactid=”39″>Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on US exchanges.

<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="If you spot an error that warrants correction, please contact the editor at [email protected]. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Thank you for reading.” data-reactid=”40″>If you spot an error that warrants correction, please contact the editor at [email protected]. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Thank you for reading.